“The global economy has been a financial accident waiting to happen, and the catalyst may be a virus.”
—David A. Levy
MOUNT KISCO, N.Y., March 12, 2020 (GLOBE NEWSWIRE) -- According to David A. Levy, chairman of the Jerome Levy Forecasting Center LLC (www.levyforecast.com), “The global economy’s flimsy financial underpinnings would have already collapsed were they not propped up by a flood of credit and equity capital to almost anyone who needs it—a reflection of the enormous pressure on return-starved investors to buy risky assets on every price dip and to buy the riskiest of bonds each time spreads start to widen. But the financial stress of the curtailment of business activity by COVID-19 will severely worsen cash flow shortfalls and is likely to break investor confidence in the risky markets. If so, flight to quality will burst the global debt bubble and deflate asset markets.”
Levy, who has been at the macroeconomic forecasting and consulting firm for over four decades, explains how two facts led to the present, financially precarious situation in a recent white paper, Bubble or Nothing (available free to the public at www.levyforecast.com/bubble-or-nothing). The facts are (1) private sector balance sheets grew faster than incomes over many decades, and (2) this disproportionate balance sheet expansion changed financial parameters in the economy, mathematically making financial activity increasingly hazardous and compelling riskier behavior.
“The pandemic’s economic disruptions threaten to trigger a global financial crisis that will be worse outside of the United States than 2008-2009,” Levy says. “Several factors make the situation particularly worrisome: record balance-sheet-to-income ratios in much of the world, a dearth of room for interest rate cuts, and a squabbling, economically strained G7 poorly equipped to cope with a global financial crisis that will be especially acute in the now vast EM sector.”
Several of Levy’s conclusions about the effects of top-heavy balance sheets have been on display recently—a secular downtrend in Treasury yields accelerated by a global shortage of safe assets, the increasing tendency for investors to pile into bull markets and expose themselves to greater risk, and a potential for greater panic selling when asset markets break down.
Levy has long advised clients to be heavily invested in long-term Treasuries and to favor domestic, large-cap stocks over small caps and foreign stocks.
About The Jerome Levy Forecasting Center LLC
The Jerome Levy Forecasting Center LLC is an independent economic research and consulting firm that has been specializing in using the macroeconomic Profits Perspective in economic analysis and forecasting for seven decades. The goal of the Levy Forecasting Center is to improve its clients’ business and investment performance by providing them with powerful insights into economic risks and opportunities – insights that are difficult or even impossible to achieve with conventional approaches to macroeconomic analysis. Additional information may be found at www.levyforecast.com.
For media inquiries contact Robert King at The Jerome Levy Forecasting Center – email@example.com.